2015 Annual Review and a Look Forward into 2016

2015 was a tough year for investors. U.S. stocks and bonds struggled.

Leading the pack was the Nasdaq 100, delivering a total return (price gains and dividends) of 9.44%.

The S&P 500 delivered a total return of 1.23%.

The Dow Jones Industrial Average delivered a total return of -7.65%.

Bonds weren’t much better.

  • iShares 7-10 Year Treasury Bond (IEF): 1.51%.
  • iShares Barclays 20+ Year Treasury (TLT): -1.23%
  • iShares Investment Grade Corporate Bonds (LQD): -1.26%
  • iShares High-Yield Corporate Bonds (HYG): -5.02%

International returns weren’t great either.

  • Vanguard Total World Stock ETF (VT): -1.86%
  • Vanguard FTSE Europe ETF (VGK): -1.94%
  • iShares S&P Asia 50 Index (AIA): -7.67%
  • iShares MSCI Emerging Markets (EEM): -16.2%

Commodities were under pressure as the U.S. dollar spent most of the year rallying.

  • SPDR Gold Shares (GLD): -10.7%
  • Powershares DB Oil (DBO): -42.4%

As you can see, no matter where investors deployed their capital in 2015, there were few ideas that delivered a positive return.

Looking forward, there’s no question global stocks and bonds will have their work cut out for them in 2016.

The Fed began raising interest rates in December for the first time since 2006.

S&P 500 earnings have fallen for the last two quarters. At the same time, the leading index is trading near an all-time high with its richest valuation (P/E ratio of 21) in more than a decade.

However, despite those challenges, there are still plenty of reasons to be optimistic about 2016.

The International Monetary Fund (IMF) is projecting the global economy will expand 3.6% in 2016, better than 2015’s 3.1% growth.

Wall Street is projecting the S&P 500 will return to earnings growth in 2016 – calling for earnings to grow by 8% for the year.

While U.S. stocks are looking pricey right now, international stocks are undervalued.

For example, while the S&P 500 has a P/E ratio of 21, the iShares Asia 50 has a P/E ratio of just 11. Other international markets also look undervalued.

Vanguard FTSE Europe ETF (VGK): P/E ratio of 17
iShares Latin America (ILF): P/E rati of 12
iShares Emerging Markets (EEM): P/E ratio of 12

International stocks are also offering better yields than U.S. stocks.

For example, while the S&P 500 offers a 2% yield, iShares Australia (EWA) offers a 6.44% yield and the iShares MSCI United Kingdom (EWU) offers a 4.06% yield.

For investors looking for great dividend payers, international markets are the place to be.

Just as I did last year, I will be encouraging my clients to invest internationally.

Although global economic growth is projected to be a very respectable 3.6% in 2016, certain industries are booming.

One great example is the cannabis industry. As I mentioned in last month’s update, cannabis is the fastest growing industry in North America. There are a group of publicly traded companies that are in position to capitalize. There’s no question these are high-risk investments, but for investors looking for growth, this is another great place to look.

Gun makers are also booming. Last month I pointed out that Smith and Wesson (SWHC) and Sterm Ruger (RGR) both delivered record revenue in 2015 and shareholders have captured big gains.

I also recently recommended online dating company Match’s November initial public offering (IPO).

So as you can see, despite some challenges, there are still plenty of reasons to be optimistic about 2016.

I am in the process of scheduling annual reviews. I will be reaching out to get everyone tuned up for 2016.

I would also like to say thank you to all of my clients for another great year. I love having the opportunity to help my clients achieve their financial goals faster and smarter.

Happy New Year and let’s have another great year!

Mike

Disclosure: I own shares of Smith & Wesson.

This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.